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Ms. Nutan Khurana Versus ACIT, Central Circle 21, New Delhi.

2015 (8) TMI 172 - ITAT DELHI

Validity of assessment order u/s. 153C/143(3) - Held that:- Satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged u/s. 153C can be inferred. Such a finding by the AO is required for attaining .....

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see’s has been issued arbitrarily which does not in any manner satisfy the requirement of section 153C of the I.T. Act. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned asse .....

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facts and circumstance in all the assessment years are similar except the difference in the additions, therefore, for the sake of brevity, we take the facts from the proceedings of the assessment year 2003-04. Brief facts of the case are that search and seizure action u/s 132 of the Incometax Act, 1961 (hereinafter the Act ) was carried out in the cases of Shri B.K. Dhingra, Smt. Poonam Dhingra, M/s. Mayank Traders (P) Ltd. and M/s Horizon Pvt. Ltd. on 20.10.2008 and during the course of search .....

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2009- 10/2591 dated 28.10.2009. Notice u/s 153C dated 01.10.2010 was issued to the assessee by the ACIT, CC 17, New Delhi requiring the assessee to file return of income within 15 days of service of the notice. Mean while the case was transferred to Central Circle 21 by an order u/s 127 of the Act issued vide F.No.CIT (C)-II/CENT/2010-11/1029 dated 19/10/2010. In response to the notice u/s 153C, the assessee filed a return for assessment year 2003-04 on 11.11.2010 declaring income of ₹ 82, .....

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since the books of accounts were also not seized, he rejected the returned figure of the income-tax return and inter alia, he rejected the books of accounts of the assessee on the ground that correct income of the assessee cannot be deduced in the absence of books of accounts, purchase & sales vouchers. After going through the trading and profit & loss account filed by the assessee, it was noticed by the AO that assessee had declared income from business of wholesale trading of fabrics a .....

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uld not be verified. The AO noted that the assessee had declared itself to be engaged in the business of trading of clothes, shawls and textiles and had shown purchases of ₹ 52,07,330/- and had declared sales amounting to ₹ 33,33,007/-. The AO observed that the goods dealt in by the assessee were such that could not be stored for long due to change of fashion and preferences and he took note that the post search enquiries conducted by the Investigation Wing had indicated that six con .....

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taking note of the office and logistical support at one premises with large number of business involved in the same business activity and since all the concerns were doing identical business and were controlled by the same group i.e. Thapar Group, the AO came to the conclusion that the same modus operandi had been used by the group by running identical set up at other locations also. Thus, the AO was of the opinion that since the activities are indicative of bogus companies/proprietary concerns/ .....

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33,077/- could not be verified and treated as assessee s income from undisclosed sources and total income of the assessee was assessed at ₹ 35,53,734/-. Aggrieved by the same, the assessee preferred an appeal before the ld. CIT (A) who was pleased to partly allow the appeal of the assessee. 3. The assessee, being aggrieved by the order of the ld. CIT (A), is in appeal before us. 4. The grounds of appeal taken by the assessee in assessment year 2003-04 is as follow :- 1. That on the facts a .....

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-II, has failed to appreciate that the Ld. AO. was not justified to ignore the submissions of the appellant that the assessment proceedings for the year under appeal was not pending on the date of the recording of satisfaction u/ s. 153C and since the same didn't abate, the proceedings u/s. 153C of the IT Act in this case are bad in law and deserves to be quashed. 3. That on the facts and circumstances of the case and the provisions of law, the Ld. CIT (Appeals)-II, has failed to appreciate .....

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n respect of seized documents of incriminating nature in the case of the appellant for the year under consideration and in absence of any incriminating seized document in the case of appellant, assessment framed u/s. 153C of the IT Act for the year under consideration, is bad in law and deserve to be quashed. 5. That on the facts and circumstances of the case and the provisions of law, the Ld. CIT (Appeals)-II, has erred in not admitting the additional evidences i.e. confirmations, confirmed cop .....

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ppeals), still relying on these books/book results for the purpose of calculating the peak from the entries in the cash book and / or bank book of the appellant, amounting of 20,39,117/- for the relevant year under consideration. 7.A) That on the facts and on the circumstances of the case and the provisions of law, the Ld. CIT (Appeals)-II, has erred in sustaining the addition of ₹ 20,39,117/- as unexplained Investment/Expenditure, ignoring the fact that the same are duly reflected/ entere .....

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for the preceding years. D) That the Ld. CIT (Appeals)-II, did not give sufficient opportunity of being heard to the appellant. 8. That the Ld. CIT (Appeals)-II, has erred in ignoring the explanation given, evidences and material placed and available on record. The same has not been properly considered and judicially interpreted and the same do not justify the additions made. The additions have been sustained with preset mind of the Ld. CIT Appeals and her order is based on surmises, conjecture .....

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der section 153C of the Act has not been recorded, before initiating the proceedings against the assessee u/s 153C of the Act, which vitiated the entire impugned assessments. 6. Ld. AR for the assessee, Shri Kapil Goel submitted that in the present case, there is no satisfaction recorded by the AO of the raided party, as admitted in RTI replies placed at pages 9 to 12 of the paperbook and available note, at pages 7 & 8 of the paper book, is one recorded by the AO of the present assessee/othe .....

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ngana & Andhra Pradesh High Court in Shetty Pharmaceuticals case that two separate notes are must u/s 153C i.e. one/first by raided party AO and other/second by non-raided party AO even if both are same, this recording of satisfaction is a sine-qua non for assumption of jurisdiction U/s 153C. He submitted that ratio of the aforesaid judgment was also relied upon by Delhi ITAT, H Bench in the case of Vinita Chaurasia order dated 29.05.2015 and also in ITAT Mumbai, Bench D in the case of Deven .....

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nd needs to be rejected. 8. We have heard the rival submission and carefully gone through the records and the case laws cited before us. The main issue that was raised by the assessee is that assumption of jurisdiction by the AO before issuing notice u/s 153C of the Act is not in accordance to law and so the impugned assessment U/s 153C read with 153A/143(3) of the Act is void-ab-initio and should be quashed being quarum-non-judice. A perusal of the assessment order of the assessee reveals that .....

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ction 153(1) at the material time, as under:- 153C.Assessment of income of any other person.- (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or docum .....

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ents etc., belong to a person other than the person searched, then, such documents or assets, etc., shall be handed over to the AO of the other person and the later AO shall proceed against such other person to assess or reassess his income. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the other person , a satisfaction has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched b .....

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person) before handing over money, bullion, jewellery, etc. to him. So, what emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the other person to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the other person. 10. In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (SC), the Hon ble Apex Court observed that A j .....

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the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction . 11. As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wher .....

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sfied before the provisions of said section are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other person. 12. Let us examine the facts of the instant case more elaborately. It is seen that some satisfacti .....

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signed is the jurisdictional AO of these cases. During the course of search & seizure documents/papers as per Annexure A-26, 27 & 28, seized by Party 04A are found to belong to Mrs. Nutan Khurana, Prop. Ishika Creations, A1-82, 2nd Floor, Hastal Road, Uttam Nagar, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of Mrs. Nutan Khurana, Prop. Ishika Creations, A1-82, 2n .....

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ika Creations , It is further noticeable from the above that : This satisfaction note is recorded and is placed in the file before issuing notice u/s 153C. The contents of the above satisfaction note leave nothing to doubt that it was recorded by the AO of the assessee before taking up the assessment u/s 153C of the Act pursuant to the search conducted on Shri B.K. Dhingra, Smt. Poonam Dhingra, M/s Mayank Traders Pvt. Ltd. and M/s. Horizon Pvt. Ltd.. Pages 9-12 of the paper book are the copies o .....

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9 (Block period) it is noticed that there is no satisfaction note available/recorded in respect of other entities. Similar replies have been given to Smt. Poonam Dhingra, M/s Mayank Traders Pvt. Ltd. and M/s. Horizon Pvt. Ltd.. On a consideration of the above replies given by the Department to the persons searched, it is manifest that there is no satisfaction note available/recorded in respect of other entities . On a conjoint reading of the Satisfaction note and replies given by the Department .....

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assessee. 13. The ld. DR was of the opinion that since the AO of the persons searched and the assessee is same, it does not make any difference whether the satisfaction is recorded in the case of the persons searched or other person. He emphasized on the factum of recording satisfaction by the AO, which condition in his opinion stood satisfied, by virtue of it having been recorded by the common AO. 14. This particular argument of the revenue was answered by the Coordinate Bench in the case of M .....

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person searched. As the money, bullion, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of t .....

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to record such satisfaction by the AO. 17. As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee. We are again unable to appreciate this contention that the commonness of the AO would make no difference in so far as the recording of satisfacti .....

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s the same person, does not, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the other person. What is crucial to note is capacity of the AO and not his identity. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction .....

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under : - and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in subsection (1) of section. 19. The above substit .....

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e AO of the other person , but, such AO of the other person is also required to record satisfaction that the books of account or documents, etc. have a bearing on the determination of the total income of such other person. In the pre-substitution era of the relevant part of sub-section (1) of section 153C covering the period under consideration, the jurisdictional condition remains that the satisfaction is required to be recorded by and in the case of the person searched so as to enable the AO o .....

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tice. However, it is important to note that the lack of jurisdiction by the AO cannot be put under the carpet in the guise of a technical defect. It goes without saying that no assessment or other proceedings can be lawfully taken up and completed unless the concerned authority has jurisdiction to do so. Lack of jurisdiction goes to the very root of the matter and cuts the tree of assessment if the foundation of jurisdiction is missing. 22. The ld. AR has brought to our notice two orders passed .....

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of the judgment of the Hon ble jurisdictional High Court in judgment in the case of SSP Aviation Ltd. VS. DCIT (2012) 252 CTR (Del) 291. 23. Let us examine the case of SSP Aviation Ltd. (supra) for evaluating the contention that the instant assessment be declared as per law. The Hon ble High Court in that case has held that the Assessing Officer having jurisdiction over the searched person should be satisfied that the valuable article or books of account or documents seized during the search bel .....

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s searched did not positively indicate the existence of some income in the hands of the assessee. The argument is simply confined to non-recording of satisfaction by the AO of the persons searched. Instead of supporting the Department s case, we find that this judgment strengthens the assesasee s case by making it clear in no uncertain terms that the AO of the person searched is obliged to record the satisfaction. The relevant observations of the Hon ble High Court contained in para 15 merit rep .....

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be shown to show to conclusively reflect or disclose any undisclosed income. 24. It is pretty clear from the above extraction that the satisfaction as referred to it in this case is that of the Assessing Officer having jurisdiction over the searched person. As such, we are of the considered opinion that this judgment does not support the Revenue s case. Resultantly, the characterization of the above Tribunal orders as per incurium by the ld. DR, is absolutely without any legally sustainable bas .....

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i B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd., did not record any satisfaction that some money, bullion, jewellery or books of accounts or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment u/s 153C of the Act. We, ergo, set aside the initiation and the ensuing assessment .....

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order of the Tribunal, the ld counsel for assessee, submitted that the first step itself has not been fulfilled. So according to the ld counsel, the issuance of notice u/s 153C is illegal. 16. We also take note of the recent judgement of the Hon ble jurisdictional High Court in a similar case in Pepsico India Holiday (P) Ltd Vs. ACIT (2014) 50 Taxmann. Com 299 (Delhi), after considering the decisions cited by the Revenue held in para 5 as follows:- 5. While coming to the aforesaid conclusions t .....

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.com 214. This Court had indicated in its judgement in Pepsi Foods (P.) Ltd. (supra) that the case of Kamleshbhai Dharamshibhai Patel (supra) was distinguishable on facts. Those observations would apply to the present writ petitions also. As regards the decision of the Allahabad High Court in Classic Enterprises (supra), this Court had indicated that it could not agree with the conclusions and observations of the Allahabad High Court inasmuch as the decision of the Allahabad High Court was premi .....

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013] 353 ITR 26/216 Taxman 109 (Mag.)/35 taxmann.com 85 (All). This decision also, in our view, does not advance the case of the Revenue. This would be evident from the observations of the Allahabad High Court in paragraphs 19 to 21 of the said decision, which read as under: "19. In Manish Maheshwari s case (Supra) the Supreme Court observed that taxing statute must be constructed strictly. The Court, however, shall not interpret statutory provisions in such a manner, which would create an .....

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er Section 132A was carried out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. The assessee established that the seized silver belongs to M/s Sarvesh Jewellers, Bareilly - the petitioner. The ownership and consignment of the petitioner was also confirmed by the Assessing Officer of the petitioner at Bareilly. The Income Tax Officer, Ward-Ill (2), Ahmedabad did not commit any error in law, in recording the satisfaction note requesting the petitione .....

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the person who whom they belong."(Underlining Added) 7. The above extract makes it clear that a taxing statute must be construed strictly and in the case of a doubt or dispute the construction in favour of the assessee has to be adopted. Apart from this, the material observation of the Allahabad High Court in the case of Savesh Kumar Agarwal (supra) is to be found in paragraph 20 Page 13 of 16 thereof where it has been observed that the assessee established that the seized silver belongs to .....

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vesh Jewellers, Bareilly). 8. From the foregoing discussion it is evident that in order that the Assessing Officer of the searched person comes to the satisfaction that documents or materials found during the search belong to a person other than the searched person, it is necessary that he arrives at the satisfaction that the said documents or materials do not belong to the searched person. We may point out that in the course of the arguments we had asked the learned counsel for the Revenue as t .....

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the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners. 14. First of all we may point out, once again, that it is nobody's case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used .....

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material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. 15. Secondly, we may also observe th .....

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es or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise. 16. Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. .....

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ne of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to "belong to" the petitioner. 17. In view of the foregoing discussion, we do not find that the ingredients of Section 153C of the said Act have been satisfied in this case. Consequently the notices dated 02.08.2013 issued under Section 153C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed. 18 .....

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were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of .....

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person searched. We concur with the said view of the coordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged u/s. 153C can be inferred. Such a .....

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with the change in the name of the assessee s has been issued arbitrarily which does not in any manner satisfy the requirement of section 153C of the I.T. Act. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore .....

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